Construction industry recovery masking underlying capacity challenges

The Construction Industry Federation’s (CIF) first construction industry economic outlook this week heard of underlying challenges facing the sector that could impact on its ability to deliver essential housing and infrastructure activity in the next decade.

“Strong headline growth figures mask potential capacity challenges, particularly in the face of the huge increase in activity forecast in the Government’s housing strategy and the National Development Plan. In 2016, the CIF forecast an average 9% per annum growth rate up to 2020. This year, some commentators forecast a growth rate of 14%. This indicates the rapid increase in activity in the sector. At some point, capacity issues in the area of skills, finance and productivity could potentially impact the industry’s ability to deliver the quantum of housing and infrastructure required.

To address this the government has quite sensibly set out a ten-year pipeline of projects within the NDP. This will give certainty to industry giving them confidence to invest in their businesses thus building the industry’s capacity to deliver. However, getting the pace of release of the funding in the NDP is essential; too slow and companies won’t invest, too fast and the sector could overheat. Housing delivery is another area for potential concern for the industry. The prioritisation and timeframe for delivery of projects is vital business planning for construction companies. Policy actions within the areas of skills development should also be given more consideration at this time.”

Several reports from the Central Bank, the CIF and the SCSI have identified a looming skills shortage as a major challenge facing the industry. To address this the CIF is engaging with SOLAS and the Department of Education to attract people back into the industry.

It is likely that the industry will have to significantly increase its uptake of modern construction practices and technologies to bridge the skills gap. In addition to these challenges, issues within the public procurement system, severe shortages in waste capacity and a market failure in funding for regional construction SMEs are all issues impacting on the industry’s capacity to deliver in the short-term.

The CIF event, hosted by Davys, featured an economic update from Conall MacCoille, Chief Economist, Davy.

Conall MacCoille told attendees:

“We forecast that consumer spending will grow by 3.2% in 2018 and 3.0% in 2019 and employment by 2.7% and 2.5% respectively. Homebuilding is forecast to grow by 23% in 2018 and 20% in 2019, which is still a fraction of natural demographic demand of 35,000 per annum. However, we expect that bank lending to the corporate sector will grow for the first time in 2018 and with housing transactions rising towards 60,000 in 2018, we expect the stock of mortgage lending to finally stabilise after a decade of de-leveraging.”

Earlier this week Davy revised their projections for Irish GDP growth upwards to 5.7% in 2018 and 4.5% in 2019 on the back of stronger-than-expected export growth and labour market performance.